I’ll give just a word of explanation about the question “Am I paying too much for the property?”
This isn’t necessarily implying that you check that you are not paying more than the open market value. It is suggesting that you check against whatever criteria you have set yourself to recognise a good buy.
So, for example, if your strategy requires buying at prices 15% below market value, does the price you have agreed equate to 15% below market value? Or is it only 10% below market value?
Similarly, looking through the list of questions you might think one seemingly glaring omission might be “Can I obtain finance?”
However, in a sense this is much more objective and more easily quantifiable at this stage because hopefully, if you understand the benefits of gearing, you will be making a mortgage application before you buy. So that question will be answered externally before you are committed to the purchase.
However, the nature of the other questions is that you could buy without having satisfactory answers only to find later that the answers then suggest you shouldn’t have bought at all. And that is the situation that this process is aiming to avoid, as well as the situation where you recognise before completion that you should not buy but still end up paying abortive costs that could otherwise have been avoided.
Now, there has to be a balance in this process otherwise you run the real risk of getting caught in the “paralysis of analysis” trap.
There is a danger that one of two things might happen.
Either we will try to answer these questions in such detail, and with such certainty, that we will never be fully satisfied with the answers, and so we will never reach the point where we feel confident enough to proceed with the deal. Depending on where we are at in the buying process we will not make an offer, or we will pull out before exchange of contracts.
Or, especially in an active market, we risk finding that at the point when we are satisfied with our answers, and decide that we should proceed, the deal has long gone because the vendor has pulled out and sold the property to someone more dynamic!
We’ll look at these two scenarios in the next post
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor